TaxWatch

Heads up investors: Capital-gains tax rules for 2024 are here

Capital-gains tax rates remain the same for 2024, but the income thresholds will push higher

Some rules on capital gains taxes are adjusting for inflation in 2024 —but some are not.

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Newly announced inflation adjustments from the IRS will tweak the rules on capital gains taxes in 2024.

The tax rates remain the same for the sale of investments and assets that grow in value, sticking at 0%, 15% and 20%. But the income thresholds for those rates are pushing higher, with an approximate 5.4% increase from 2023 levels.

The changes announced Thursday will also let people be more generous with certain gifts before the gift tax applies, and they will make the estate tax kick in at higher levels.

The tweaks are all part of the IRS’s annual update on more than 60 tax provisions that are pegged to rise with inflation rates. The adjustments are sizeable, with both income tax brackets and the standard deduction up by more than 5%.

The rules will apply to taxes that will be filed in 2025 on income earned in 2024.

After 7% increases for tax year 2023, the newest IRS numbers reflect inflation’s slow retreat from four-decade highs.

Long-term capital gains — which are gains on assets owned for at least a year before sale — are taxed at lower rates than ordinary income.

In 2024, individuals’ taxable income can be up to $47,025 to skip capital gains taxes with a 0% rate. That’s up from $44,625 this year. Married couples filing jointly can get the 0% rate if their taxable income doesn’t exceed $94,050. That’s up from $89,250.

The 15% tax rate applies to individuals with taxable income up to $518,900, which is up from $492,300.

For married couples, the threshold is $583,750. That’s up from $553,850. Beyond those levels, the tax is 20%.

2024 tax rules for gifts and estates

The annual gift tax exclusion rises to $18,000 per recipient, up from $17,000 per recipient. That’s a nearly 5.9% increase from 2023 levels. Above that limit, people giving the gift are generally responsible to pay taxes on the gift and have to file a gift tax return.

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Estates of people who died in 2024 can be worth up to $13.61 million before federal estate taxes apply. The exemption is up from $12.92 million in 2023, also a more than 5% year-over-year increase.

The 2017 Tax Cuts and Jobs Act almost doubled the size of the lifetime estate and gift tax exemption. But the TCJA expires in 2025, and without new laws, the exemption would revert in 2026 to its size before the 2017 overhaul. The standard deduction would also shrink, while five of seven income tax rates would increase.

What isn’t increasing

For investors and home sellers, the annual adjustments are a stark reminder of the tax provisions that are not designed to rise with inflation.

First is the 3.8% net investment income tax, a revenue raiser connected with the Affordable Care Act of 2010. The tax has been in place since 2013 and kicks in at $200,000 for individuals and $250,000 for married couples filing jointly. Interest, dividends, capital gains are some of the types of income that fall into the NIIT’s scope.

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Capital losses offset capital gains at tax time. When there are more losses than gains, people can deduct up to $3,000 in capital losses from their income. But the capital loss limitation has stayed at $3,000 for over four decades, meaning the tax code has been offering less cushion for soured investments through the years.

One pending bill would increase the loss limitation to $13,000 and then have the limitation adjust higher for inflation.

When people sell their home, up to $250,000 in profit is excluded from capital gains taxation, the IRS says. Married couples can pocket up to $500,000 in profits from a sale before capital gains taxes apply. The exclusion has been set at these levels since 1997.

Another pending bill would double the exclusion, letting individuals sidestep capital gains taxes on the first $500,000 in profits. Married couples could bypass capital gains for the first $1 million in profits. The exclusion’s future increases would be pegged with inflation.

Related: Here’s how to use the new tax-bracket information for 2024 to lower your tax bill